Zoe Adamovicz about the platform, future plans and why she thinks a utility token is not the best investment vehicle.
Neufund, a Blockchain equity platform from Berlin, has managed to raise more than $11 mln so far and is announcing one more funding round today.
Zoe Adamovicz, Neufund’s co-founder and CEO has shared the platform success story, her views on the current market and tips for ICO enthusiasts.
1. First of all, congratulations on raising $11.6 mln from private investors! How did you manage to do that?
Actually we raised this capital from both private and institutional investors – from the venture capital firms, business angels and the cryptocommunity. I believe a big part of our success is owed to the fact that since the inception of Neufund we were catering to both – the cryptocommunity, and the broader tech community, startups, VC investors, tech enthusiasts and so on.
Neufund is a platform to make actual equity investments using Blockchain – something many of the current token issuers and investors want, but which is not happening due to relative technical and regulatory complexity.
In the Neufund platform, on the one hand, we enable the cryptocommunity to get real equity in companies they invest in, represented by equity tokens. On the other hand, we open a channel for EUR investors to invest in equity tokens without the need of purchasing cryptocurrencies on the exchanges. Through this, we connect the off- and on-chain world.
Thanks to building this bridge between the crypto and the venture capital world, we were able to attract investors from both sides, and of course, this was very helpful. In fact, we have built around Neufund a community of all kinds of investors who share the same goal – to remove unnecessary barriers that prevent the alliance of inventors and investors, who seek transparency, trustless-trust and a direct alliance of founders with those who believe in their success.
We just announced some of our most prominent investors who participated in the pre-sale in the past few days. It is a fantastic and a very diverse crowd, from core Ethereum developers, to professional VCs, business angels, cryptoinvestors and even Oscar winning movie producers, like Dario Suter, Max Kordek (Lisk Foundation), Julian Zawistowski (Golem Project), Michael Jackson (Mangrove Capital), Philipp Freise (Kohlberg Kravis Roberts & Co), Piotr Wilam (Innovation Nest), Fabian Vogelsteller (Ethereum Mist, ERC20), Max Niederhofer (Sunstone Capital), Eric Wahlforss (SoundCloud), Brian Fabian Crain, Christophe Maire (Atlantic Labs). It shows that Neufund is a platform for everybody and that Blockchain is a technology for everybody.
You can find the full list on our Medium.
2. Could you describe how your platform is set up to run?
In order to understand Neufund as a decentralized fundraising platform, one needs to grasp two aspects of the project:
Firstly, Neufund provides a possibility to issue and invest in Equity Tokens, which represent shares in companies. Secondly, and more importantly for the cryptocommunity, Neufund is a decentralized ecosystem. It is owned by the community of investors, including those that I mentioned before. This ownership is represented by Neufund token, Neumark.
The two main types of actors on the platform are investors and companies. Investors bring capital to the platform and look for interesting investment opportunities in companies. Companies are businesses of various kinds that look for funding by offering part or all of their shares to investors. The fundamental transaction of the platform is investment, where investors become shareholders in companies via Equity Token Offerings (ETO).
Investors that have yet to join the crypto economy find in Neufund an easy way to get started. With our stable coin “EURT” (Euro Token, pegged 1:1 to Euro) we bring off-chain capital on-chain. This is just an internal coin, but it provides a stable reference for value of investments and may stabilize the price of Ether by preventing sell-offs. With the advent of the EURT, Neufund’s solution to the volatility of cryptocurrency, all investments will be denominated in Euro, which serves as the base currency of the platform. This does not prevent fundraising in existing crypto-currencies of which Ether will be supported initially. Companies and investors are free to choose what currencies they accept during the ETO. Companies can raise funds from investors in their existing network, as well as any cryptocurrency holder, or via the capital pool on the Neufund Platform dedicated to funding innovation.
Once a company has successfully completed a campaign and issued its equity tokens, Neufund provides an easy-to-use user interface for interacting with shareholders. It is possible to hold votes for legally binding resolutions, issue updates and reports, open further fundraising rounds, enable secondary trading of equity tokens, and perform other functions necessary for responsible corporate governance.
Aside from the sheer utility of the Equity Token, it is important to note that Neufund is a network. It’s a universal fundraising protocol, and Neufund is a decentralized fundraising ecosystem.
Neufund Platform’s value grows when the number and volume of investments grow. The economy must be designed to stimulate investment and reward transacting participants. Here, the guiding principle is that anyone who invests should get a share in the whole platform. To be a self-sustaining system, Neufund is designed to be a true token economy. Its value is reflected by a protocol token called Neumark (NEU), which participants get as a reward for committing capital to the platform. This essentially allows people to economically own the ecosystem, a powerful incentive for investors to bootstrap the platform and grow it with further investment.
NEU Token Value The value of NEU results from fee payouts and participation in a platform portfolio of equity tokens, and thus gives economic ownership of the network to said holders. 1. With each successful ETO, a fee is deducted from the invested amount. This platform fee is then distributed to NEU holders in proportion to amount of NEU they own (“pro rata”). 2. Within the same ETO, a small fee in the form of company equity tokens is deducted from the total number of tokens that were acquired. This token participation fee is added to a platform portfolio of all companies ever to conduct a token sale on the platform. The platform fee mechanism is a simple one. It is taken from the investment upon each successful ETO on the platform and immediately distributed to NEU holders.
3. How do you see further development of your project? Any specific plans?
There are two parallel paths to the Neufund story. The first one is about the product: building the product with all necessary features, bringing capital to the platform, procuring relevant deals, producing a sound token economy, and so on. The second one is about governance: performing a gradual legal and organizational transformation to make the Platform Operator redundant in the sense of transforming all legal entities into decentralized organizations (“tokenized public companies,” as we call them). We are working towards a future where Neufund is fully owned and managed by community members.
The first step, however, is launch of platform fundamentals. The registration and login flows with hardware Neukey support, KYC processes for individuals and organizations have already launched and you can see how this works by participating in our currently ongoing pre-sale, or pre-ICBM (Initial Capital Building Mechanism) as we call it.
The next steps are stable EURT token and associated Neumint entity to provide a way to commit funds in the ICBM and/or ETOs via fiat currency. Existing Neumark token holders may proceed with migration to the platform and perform KYC for their accounts.
At the same time, the capital buildup of the platform continues. All investors may participate in the EURT phase of ICBM, where they may commit Euro in the form of EURT and be rewarded with Neumark that is immediately tradable.
The next step is the launch of primary market platform, first Offerings of Equity Tokens, when Companies start listing their offers, talk and negotiate terms with investors, proceed with ETOs and get funded. Neufund also reveals a first batch of pre-selected high-quality deals prepared in advance.
Once first equity offerings are completed, fees are distributed for the first time, Neumarks are “mined” for the first time outside of ICBM, and ETO investors become shareholders of the companies they invested in, which will give them access to on-chain company governance.
4. When you spoke with Cointelegraph reporter almost a year ago, you said that “ICOs are the future of funding.” Do you still have the same vision? With the enormous number of ICOs going on and the amount of money raised from them drastically going down?
The discussion about the inefficiency of app tokens as investment vehicle has been unfolding over the past few months, resulting in a general conclusion that such tokens are not a good way to fund new or existing projects, both for regulatory and economic modeling reasons. Many app token projects today have little economic sense and do not represent any network value. Sometimes they are just flawed business models designed with a good intention, and sometimes they are outward scams.
This does not, however, undermine the value of Blockchain and ICOs as an extremely efficient, secure and cheap process to fund any project. Since the inception of Neufund, for us, the main value of ICOs, and the underlying Blockchain technology in fact, has been in the efficiency of that process. If you set it up right, it is as if anyone could afford doing an IPO – from a coffee shop to a huge corporation. It lowers the barriers to entry and the transaction costs massively, it makes them almost negligible. For comparison, to do an IPO today, you need to have hundreds of thousands, or millions of dollars available, to even start considering it as an option! So while the market still needs to stabilize, the hype needs to cool down, and the regulation needs to kick in, we strongly believe that cryptocurrencies and ICOs are here to stay. Even Christine Lagarde, the head of International Monetary Fund, in an official statement said recently that “it may not be wise to dismiss virtual currencies.”
The problem with equity is that it in cryptocommunity it is often associated with the classical financial industry, with the mistakes of regulators and governments, and a lot of people would rather see a complete revolution of this system, rather than an evolution.
However, when stripped of its negative connotations, liaisons with banks, greed, the crises of 2001 and 2008, and in general the pre-Blockchain finance industry, the concept of equity appears as one of humanity’s greatest economic inventions.
It could be thought of as an abstract, general token standard, that could represent any business model. The concept of a share is actually not so old — it starts in 1602 with East India Company issuing first shares tradeable on Amsterdam Stock Exchange. This innovation made a great deal of Europe’s economic growth following the Middle Ages. In today’s Blockchain economies shares could be thought of as equity tokens, put on-chain as an abstraction above app tokens. Equity tokens could represent a stake in governance, economic output and information of the network, etc.
Some of the benefits of combining ICO with startup funding are have been expressed by the founder of Lisk Max Kordek. Lisk was one of the first and remains one of the world’s biggest ICOs ever.
5. Ethereum co-founder Vitalik Buterin said recently that, like any other, the crypto market is going to mature and, and almost all of the issued coins will lose their value. Do you agree with his point of view?
Yes, Vitalik is actually pointing out to the fact that a utility token, or an app token, is not the best investment vehicle. There are strong arguments that by buying app tokens the project supporter may actually be killing the project they want to support — even a project with a perfectly balanced token economy behind.
In his “On Medium-of-Exchange Token Valuations,” he is discussing the economics of network tokens in terms of equilibrium seeking between developers (supply side), and users (demand side). In the process of equilibrium seeking, the token looks to establish the optimal price of service or good produced by the network. This is a standard economic situation where the value of goods produced is maximised by the competing forces — users wanting to drive the price down, and developers (service providers in this case) wanting the price up. However, Vitalik argues, the above economic equilibrium is destroyed when the third party appears in the equation — the investor, or, as Vitalik says, the manipulator — whose economic gain is best achieved by destabilizing the equilibrium of the economy of the network.
We were part of this debate with our CTOs concept of entangled tokens, which are “both the reward miners get for contributing work and a “price” the consumer needs to pay in order to access the network and make use of its services.”
It’s the same argument as Vitalik’s, just differently phrased. Originally the price of the token should be set based on the supply and demand on the free market, between the user and the producer. The involvement of a third party — an investor, entirely changes token economy dynamics, eventually destabilizing the price of the token and putting the entire token economy at risk. The investors are not aligned with other network participants — they will either pump and dump tokens for a short-term gain or look for a large increase of token value long term, which also poses significant problems.
This is, however, an argument against using the utility tokens as investment vehicles – indeed those tokens may lose all the value in time. This is, however, not an argument against ICOs per se.
6. In conclusion, do you have any advice or recommendation for people planning to launch an ICO in the future? Say, the key do’s and dont’s?
- Don’t get lured by regulatory or economic workarounds. The people who invented economic models or regulations that control them were often great mathematicians or economists. Economy and current financial markets regulation are a goldmine of knowledge and inspiration.
- Don’t get lured by exotic jurisdictions. Most of the western world, and in particular Europe, have very similar if not identical regulation on securities and ICOs, even Swiss law is actually not different. There is so much movement in the regulatory space at the moment that it is better to use a stable jurisdiction and be sure that you won’t be affected by sudden changes in the space.
Thank you so much, Zoe!
